Megatrends

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Fake brands recognising a real trend

Once fake brands were sold from suitcases on high streets and back-street market stalls. Then trend-setter, gap-year teens and early twenty-somethings began returning home wearing their knock-off brands with pride.

Now they are more pervasive, and are attracting buyers from across the consumer wealth spectrum. Are fake brands becoming chic and fun, and are luxury brands in danger of being undermined by a consumer trend towards ironic purchasing?

BACKGROUND

Fake products represent a long established and extensive global industry. The phenomenon varies from breaches of product patents in industrial and technical products, through illegal reproductions of copyright entertainment material to fakes of branded luxury lines.

Various figures quoted by regulatory bodies illustrate the penetration of counterfeit goods in world trade. It has for example been estimated by the OECD that international trade in counterfeit goods could have reached US$200 billion in 2005.

And this market is growing. European and North American customs authorities have reported phenomenal growth in the number of counterfeits seized in recent years (though this may also reflect greater efforts to stamp out the counterfeit trade). Between 2001 and 2005, for example, seizures of counterfeit products by US Customs more than doubled.

Last year, the USA and European Union launched a joint strategy to enforce global intellectual property rights, which will include closer customs cooperation and data sharing. This is a priority initiative, led by high profile figures including Carlos Gutierrez (US Secretary of Commerce), Gunter Verheugen (vice president European Commission for Enterprise and Industry) and Peter Mandelson (EU Trade Commissioner). Intellectual property is one of the key advantages still held by Western industries and the new actions reflect how vulnerable they feel in the face of overseas infringements.

Asia is the principal source of the world’s fake brands market with China the largest source economy. Official estimates suggest that counterfeit products account for 15%-20% of products made in China, representing 8% of China’s US$2.6 trillion GDP.

In terms of definitions, counterfeiting covers a vast range of consumer and industrial products. A specialist area of the trade is counterfeit pharmaceuticals. In this case, fake brand medicines are mainly targeted at low-income countries – rather than North America and Europe which are the target markets in most other counterfeit areas. It has been estimated by the US Food & Drug Administration that fake medicine accounts for up to 10% of the world pharmaceutical trade, while this rises to perhaps 25% in poorer countries, and extremely high levels in China.

This article chiefly considers fake consumer brands, which are non-deceptive rather than deceptive counterfeits: i.e. the consumer knows that the brand is a copycat to a famous original.

WHY BUY FAKE?

Fake brands clearly supply a basic demand for low cost items that the consumer can associate with less affordable, scarce premier brands. However, psychologists have looked far more deeply into this area of consumer behaviour and a wealth of research has been published. A very basic finding is that despite the low price factor, fake brands are regularly bought by relatively high income households in developed countries.

A few other points to note about fake brand buying:

Fake brands are more affordable, often with a huge price difference to the original brand;

Fake brands can have far wider availability than the real, exclusive brand – especially in the low income countries where they are made;

Buying situations such as holidays favour fake purchases, as consumers are away from their normal social/legal restraints;

Counterfeits can reflect the prestige of exotic travel (to fake buying centres) and provide an authentication of the travel experience;

Many consumers see fake brands as fun and a form of popularising the real brand;

Consumers sometimes believe they are contributing to the local economy when they purchase fake brands.

Several of these points were raised in a recent academic study by Martin Eisend and Pakize Schuchert-Gueler (Academy of Marketing Science Review, 2006). Their research included a series of focus groups in Germany, and included an analysis of the “cognitive dissonance” set up by consumers having knowledge of the negative issues behind fake products alongside the fact that they bought them.

Examples of the justification process included:

“I have to think about it all the time (an original Rolex) and don’t feel free by having it on me”

“When I purchased my first Gucci copy I got used to keeping the glasses safe in a case – I never did that before with other glasses.”

“Counterfeits can help those poor individuals and the economy of the country.”

The first comment about the peace of mind of cheap knock offs can be especially true when on holiday. It is also related to a recent trend towards “bling” costume jewellery, in which some women claim to feel safer wearing cheap copies – while others now say they can wear expensive jewellery as thieves will assume it’s fake.

The point about testing out a brand with a cheaper fake implies that the consumer will move up to the real thing when he or she can afford it. This is also related to the wider argument that fake brands enhance and spread the reputation of the original brand, and ultimately their sales. Brand manufacturers obviously dispute this and state that fake products compete for expenditure and spoil their brands’ valuable heritage over the long term.

Finally, brand owners should perhaps look at consumer comments about supporting local economies. Consumers may believe, rightly or wrongly, that the real products are manufactured in the same low-income economies as the knock-offs. Buying fake – especially on holiday – can therefore be seen as by-passing the multinational and buying local. It is harder to support this thinking at home when the knock off has reached North America and Europe via dubious means. However, consumer interest in anti-globalisation and fair trade goods is a growing trend, and could create demand for legal, low-priced imitation products sourced from developing countries.

BUT IS IT WRONG?

Research indicates that consumers seek to justify their fake purchases to themselves and that the spate of recent announcements about the wider fall out and criminality of illegal copying has largely fallen on deaf ears. One exception has been music piracy, where there has been some success in convincing consumers not to defraud musicians (emphasising local, low-paid musicians rather than major artists).

A survey last year (Synovate and TeleNations Global telephone omnibus survey) demonstrated that over two-thirds of US consumers felt that there was no problem with buying fake.

The survey involved 1,600 consumers in the USA, Serbia, United Arab Emirates (UAE) and Hong Kong, China – UAE and Hong Kong, China are world shopping centres and major channels for fake brands.

Surprisingly, only 25% of Hong Kong respondents felt there was nothing wrong with fake brand buying.

Consumer Survey: Is There Anything Wrong in Buying Counterfeits?

% response “no”

USA

69%

Hong Kong, China

25%

Serbia

41%

UAE

53%

Source: Synovate/TeleNations Global telephone omnibus survey 2006

In terms of those who had actually bought a knock off, 57% of US respondents stated that they had, against a lower 42% in Hong Kong, China, and a very high 81% in the UAE. The high UAE results reflect the availability of fake brands in this dynamic shopping location. The Hong Kong, China response looks low given the availability of fake brands there (fake brands in Hong Kong, China can often even be segmented between “top quality,” “medium quality” copies etc).

The survey asked about the product sectors where counterfeits are most effective. Band name clothing comes top, with 59% of US consumers saying that fake brands were perfectly good alternatives to the originals. 61% of UAE respondents agreed with this.

This relates to other research showing that customers are more likely to buy fake where they can pre-test the quality (checking the fabric and stitching on clothing etc.) than where they cannot (electronics etc.).

The same survey also re-iterated the importance of price. 94% said they thought sales of fakes were driven by low price – while one-third thought the quality of knock offs were similar to that of the originals.

COOL FAKES?

Illustrations of amusing fake brands are common on the internet. Here are some current examples:

Brands and their rivals

Original Brand

Fake Brand

PRADA

PARADI

PUMA

PMUA

THREE STRIPE ADIDAS

FOUR STRIPES

ADIDAS

DAIADS

SONY

SONIA

NIKE

NIRE

PLAYSTATION

POLYSTATION

NOKIA

NOKLA

SONY ERICSSON

SUNY ERICSSOM

Source: Euromonitor International

A study from law firm Davenport Lyons conducted by Ledbury Research underscores the growth of fake brands in the UK, and reveals that the profile of the fake buyer is not the once-expected low-income consumer with little prospect of buying the real thing.

The study found that 12% of the UK population had bought an item of fake clothing, footwear, leather goods, watches or jewellery in the year prior to interview, while 48% had bought a look-alike (closely resembling the style of a famous brand). In comparison 43% had bought a genuine premium brand in the same period.

Factors driving the success of fakes included higher income and easier consumer credit; a general upgrade towards higher grade products in many sectors; and the entry of exclusive brands into the mass market.

Most interestingly, the research found little difference between the profile of consumers who had bought a fake in the past year and the general demographic. Fake brand buyers are just as likely to be employed, and only slightly less likely to be well-paid.

Profiles of Fake Brand Buyers and Non-Buyers, UK

%

Have bought a fake

Have not bought a fake

In employment

52

52

Earning over £50,000

16

19

Under 35 years old

31

33

Married/in relationship

75

69

Source: Ledbury Research/Davenport Lyons, 2006

Burberry was the most frequently bought faked brand, followed by copies of Gucci, Louis Vuitton and Yves St Lauren.

Finally, not only are fake brand buyers not especially poor or unfamiliar with high class brands, but amongst fashion savvy consumers especially, there is currently a knowing irony in the use of fakes. These switched on consumers find it infra dig to pretend that a fake item is real. Rather they flaunt the copy – discuss its origin, name, price and how they acquired it – especially if abroad. Luxury brand owners will hope that this remains a niche consumer interest.